When Remodeling Pays—and When It Doesn’t

People take great pleasure in fixing up their homes, whether it’s as elaborate as adding a master bedroom suite or as simple as installing a new light fixture. But do these home improvements count as an investment? Many homeowners believe so, and that belief can lead them to borrow and spend tens of thousands of dollars.

A smart move? Consider Remodeling magazine’s 2011-2012 Cost vs. Value Report, which can be found at www.costvsvalue.com. The survey looks at a slew of projects, including things like a bathroom remodeling, adding a garage, replacing windows, a two-story addition and building a deck.

…try to think of the project not as an investment, but as consumption—and go ahead only if you’ll get pleasure commensurate with the dollars spent.

The survey compares the cost of such projects to the amount it would likely add to a home’s selling price, assuming you sold within a year of making the improvement. The results aren’t encouraging. The amount recouped was typically between 50% and 70% of a project’s cost. For instance, the magazine estimates that a family room addition would cost an average $83,118—and you would get back $50,004, or 60% of the cost, when you sold. This shouldn’t be a great surprise. You may believe your new kitchen is in the best possible taste, but potential buyers might think otherwise. Moreover, the longer the time between making the improvement and trying to sell your home, the scruffier your new kitchen will likely look and the less it will boost your home’s value.

So what if you’re considering remodeling your home? First, try to think of the project not as an investment, but as consumption—and go ahead only if you’ll get pleasure commensurate with the dollars spent. Second, you probably shouldn’t spend a lot of money fixing up your home if you’re planning to sell. The improvements may make for a quicker sale. But you are unlikely to recoup all the money you spend.